Business Secretary Vince Cable yesterday provided the first measure of how fruitful an outcome the shareholder spring might yield.
His main proposal to give investors a binding vote on a company's pay policy every three years, or annually if changes to remuneration are made, provides the first step in holding directors to account over how they reward themselves.
The lack of an annual veto will be a disappointment to many private investors who remain justifiably angry at seven-figure pay packets and bumper bonuses while their hard-earned savings are failing to provide the dividends they expected. Nevertheless, enabling executives to get on with running the business with undue concentration on revising pay packages on an annual basis will be an important factor in these challenging times. Anyway, a change to remuneration in any year would trigger a vote.
The real significance of the measures is that they should achieve a revolution in culture and practice so that rewards for directors become transparent. In April nearly one-third of Barclays' shareholders voted against or withheld votes in relation to the pay package that included £17.7 million in salary, bonus, benefits and vested share awards for chief executive Bob Diamond. This despite his admission that the bank's performance was unacceptable in 2011. Replacing a labyrinth of rewards and bonuses on annual reports with a single figure for each executive's pay and the amount of "golden goodbyes" is recognition that shareholders are entitled to know these figures.
If the proposals are to result in legislation that heralds a new era of responsible pay setting, as TUC leader Brendan Barber hopes, transparency must be the first step towards greater accountability. An effective mechanism is also required. If the aim of these proposals is to produce a template for a transparently just system of remuneration, the chief flaw is that there is no mechanism for determining boardroom pay in relation to that on the shop floor. Four years of economic downturn have resulted in employees' pay being frozen or rising below inflation at best while directors' pay packages have reached record levels. Companies which claim to reward success should have nothing to fear from a requirement for employee representation on boards, and ideally on remuneration committees.
The rebellion at annual general meetings this spring gained traction because institutional shareholders had come to share the belief of personal investors that executive pay cannot be decided without taking account of the general conditions of the economy and the salary scales of employees.
The protest of shareholders, rightly outraged at reward for failure, was as much a stand against corporate greed as that taken by the Occupy movement outside St Paul's Cathedral. The proposals for improving corporate governance are welcome but the Government must recognise that unless it tackles the equal scandal of tax avoidance, a justified sense of grievance will continue among ordinary citizens. Of the £7 billion annually lost to the Treasury through tax avoidance, £4.5bn is accounted for by individuals. We now know they include the comedian Jimmy Carr and the Take That band members. Executives with telephone number salaries and bonuses also exploit loopholes. Since £4.5bn is approximately five times as much as the Government hopes to claw back by cutting or withdrawing benefits from disabled people already struggling to make ends meet, it is time to recognise that the challenge of the shareholder spring for a more just – and more prosperous – society, goes far beyond boardroom pay.
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